How to attribute PSI

This information is for bookkeepers, tax practitioners and others who are lodging income tax returns for a business receiving personal services income (PSI).

If you operate your business as a company, partnership or trust and that business receives PSI and the PSI rules apply, your business needs to attribute or treat any PSI received as belonging to each individual who produced the income.

If you operate as a sole trader, the attribution rules do not apply to you. Your income is already reported in your individual tax return.

Step 1: Identify the amount of PSI received

Step 2: Subtract any salary or wages

Your business needs to subtract any salary or wages that has been promptly paid to each individual who produced the PSI.

Promptly paid means paying an amount by the 14th day after the relevant PAYG payment period during which the PSI was received by your business. For example, if your business lodges activity statements quarterly and PSI was received by your business in the January to March quarter; promptly paid would be if the salary or wages were paid to the individual who performed the services by 14 April.

Step 3: Consider any excess entity maintenance deductions

If your business earns other income that is not PSI , it needs to deduct the entity maintenance deductions from other income first, before subtracting any remaining amounts from the PSI.

Entity maintenance deductions are certain allowable deductions associated with running your business including fees for opening, managing or closing a bank account or tax-related expenses.

When two or more individuals each generate the PSI, your business needs to apportion any excess entity maintenance deductions between the individuals using the following formula:

Excess entity maintenance deductions x individual's PSI Total PSI

Example: Allocating excess entity maintenance deductions

Joe and Jim are engineers who work through their company Joe and Jim's Engineering Services Pty Ltd. The business received $50,000 PSI ($20,000 belonging to Joe and $30,000 belonging to Jim). The business has $1,000 of excess entity maintenance deductions which would be allocated as follows:

Step 5: Attribute the net PSI

Positive net PSI

If, after completing all the previous steps, there is a positive amount of PSI, then this amount will need to be attributed to the individual who produced that PSI.

Your business would give the individual a PAYG payment summary and the individual then needs to declare this amount in their individual tax return.

If you're a company, you do not include the net PSI amount that has been allocated to the individual as assessable income in your tax return. Instead, you report the net PSI amount as a reconciliation item, under 'Other income not included in assessable income' in your return. This avoids double taxation.

Partnerships and trusts include the net PSI amount as a reconciliation item, under 'Income reconciliation adjustments' in the relevant tax return.

Net PSI loss

If, after completing all the previous steps, there is a negative amount of PSI, then this net PSI loss must be transferred to the individual. Your business cannot use this loss against any other business income or carry forward the loss.

The individual can claim this loss as a deduction in their individual tax return. If the individual doesn't have enough other income in that year to offset the loss, the individual may carry this loss forward under the carried forward loss rules.

Companies include the net PSI loss amount as a reconciliation item, under 'Non-deductible expenses'. Partnerships and trusts include the net PSI loss amount as a reconciliation item, under 'Expense reconciliation adjustments' in the relevant return.

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